What Your Lower Winter Energy Bill Means to Power Companies

worker are closed flang of pipe.
Energy prices are plunging around the world, and consumers are likely in for a winter of lower energy costs. The U.S. Energy Information Administration predicts natural gas heating bills may fall as much as 7.9 percent for consumers in the Midwest, and heating oil costs nationwide may fall an incredible 15.4 percent from just a year ago.

You may think that's bad news for the companies collecting your energy bill. but most utilities are insulated from the falling cost of energy. They'll rake in profits regardless.

How a Utility Makes Money Whether Energy Prices Rise or Fall

Most utilities around the country providing electricity and natural gas to homes and businesses operate in a highly regulated environment. Cities and towns don't want 15 different power lines or natural gas lines running overhead or under our feet, so they allow a utility a monopoly to build infrastructure and provide energy to customers.

In return for this monopoly, utilities agree to only make a certain rate of return on the assets they install, essentially limiting their profits. But this setup also ensures that utilities make money even if you don't use much energy. Prices they charge to you are set so they generate their expected rate of return, even if energy prices fall.

Yet utilities aren't the only energy companies that will be making money despite falling energy prices. A segment of the industry called midstream transports energy around the country, and they're in for a good year as well.

The Tollbooths of Energy

Between the oil and natural gas wells of the U.S. and the homes and businesses that consume energy is a maze of pipelines that transport energy around the country. In many cases, these pipelines follow the interstate network that already zigzags across the country (as you can see in the map below).

Source: U.S. Energy Information Administration

But instead of being owned by the government like roads are, energy pipelines in the U.S. are owned by midstream energy companies. Kinder Morgan (KMI) is one of the largest pipeline operators, with 80,000 miles of pipelines moving oil, natural gas, carbon dioxide and other materials around the country. In many cases, these companies don't collect fees based on the price of oil or natural gas, but instead essentially collect a toll for moving energy.​

Midstream energy companies are among the most important in the energy industry, but like electric and natural gas utilities, they're not all that susceptible to energy price fluctuations. Don't feel bad for them when prices fall like they have recently. The stability of a company like Kinder Morgan may also be a reason to put the stock on your investment watch list.

Big Oil Will Find a Way

Big oil companies won't be impacted as you might think, either. These companies dominate energy in the U.S., such as ExxonMobil (XOM), Chevron (CVX), Total (TOT) and Royal Dutch Schell (RDS-A).

Big oil may see drilling, or upstream, profits take a beating, but that's not all they make money doing. Big oil companies own refineries, chemical plants, gas stations and more in their downstream businesses, and as long as people are using energy, they'll make profit somewhere along the value stream.

There's also production of natural gas, which has seen prices recover from lows in 2012. Companies like ExxonMobil have invested heavily in the last decade in expanding natural gas production, and it could now pay off if prices continue to climb.

Of course, there is one danger for big oil that should worry executives and investors alike.

The Biggest Danger to Energy Profits

Profits in the energy industry are largely tied to how regulated a company is and how much of its product consumers are using. In large part, electricity consumption continues to grow slowly but surely, ensuring long-term profit for utilities.

Natural gas usage is also growing slowly, driven by its use to heat homes and the low cost that's making it attractive to more electricity generators.

But when oil and gasoline prices fall, the pain is felt closest to the source. And prices are falling: According to GasBuddy.com, the average retail gasoline price in the U.S. has plunged from $3.70 a gallon in late June to around $3 today. This is in part due to greater supply on the market, and a progressive decline in oil and gasoline consumption in both the U.S. and Europe over the past decade.

U.S. oil consumption data by YCharts

The drop in gas prices may not impact a lot of companies, such as refiners or pipeline operators, which will also have lower costs because oil is cheaper or profits are regulated. But it will have a big impact on oil drillers. Continental Resources (CLR), Kodiak Oil & Gas (KOG), and EOG Resources (EOG) are just three of the companies that expanded rapidly to exploit U.S. shale oil reserves, and they'll see revenues drop as a result of lower oil prices. Since drilling costs don't come down just because oil prices are low, their profits will likely plunge as well.

So keep in mind when you're paying your energy bills this winter that lower prices aren't necessarily bad for all energy companies. If they're not the ones taking the fuel out of the ground, they'll likely be just fine whatever you're paying.

Motley Fool contributor Travis Hoium manages an account that owns shares of Kinder Morgan, Royal Dutch Shell CL A and Total (ADR). The Motley Fool recommends Chevron, Kinder Morgan and Total (ADR). The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.

10 Simple Strategies to Slash Your Winter Energy Bills
See Gallery
What Your Lower Winter Energy Bill Means to Power Companies

Turn down the thermostat. Who doesn't know that? Throw on a sweater, dress in layers and keep your head and feet warm to make you even more comfortable. In fact, you'll sleep better if those popsicle toes are kept toasty, according to recent sleep research. Try a tip from the Brits and use a hot water bottle or heating pad to warm the bed down by the foot before you retire. Electric blankets are another way to keep warm. 

Most utility companies offer free or low-cost energy audits. As my utility put it when it scheduled mine, "It's free. You paid for it." Most are subsidized by a monthly charge on all customers' bills. I came away with a dozen compact fluorescent bulbs, a low-flow shower head, faucet aerators, a surge protector strip and some practical suggestions on what my bill should look like and how I could get it down. Most interesting I discovered from my energy audit that a gas fireplace or wood stove is cheaper to run than to raise the thermostat to heat the whole house.
Take a page from the WWII playbook and try blackout curtains. They insulate, and they muffle street noise and keep a room darker for sleeping. You buy them at most department stores' home sections or make your own. Lined curtains, extra layers of drapes or even blankets will keep out the cold.
Easy do-it-yourself projects include weatherstripping, window caulking and attaching plastic sheeting on windows and glass doors. For the last (a personal favorite), use-two sided tape and and a blow dryer to pull it taut. It takes me on average a half hour to do a window and less once the ladder is already up. Another very inexpensive fix for exterior drafts is to insulate behind electrical outlets on exterior walls with small foam cutouts or rubber gaskets. This only takes minutes to install.
The newest smart thermostats allow you to program away from home on your smartphone, but very affordable models also allow you to set it and forget it, turning down the heat when you are asleep or away. Some utility companies offer rebates on smart thermostats, and some like ConEd (ED) offer free smart thermostats to customers. According to energy.gov, every one degree lower can reduce your heating bill by 1 percent and using a programmable thermostat year round can cut heating and cooling costs by 10 percent.
Another Old Farmer's Almanac tip is that running a humidifier will allow you to feel more comfortable at lower temperatures. It will also help your complexion. Just be careful the moisture level isn't too high or mold and mildew could create a worse problem than dry skin or high heating bills.
According to energy.gov, the worst offenders draining your power and wallet are computers, TV set-top boxes, DVD players, electronic charging units, gaming consoles and kitchen appliances. These phantom loads cost the average American household $100 a year. Turning these off with a convenient surge protector strip can drastically drop a bill. Replacing just 13 incandescent light bulbs with more energy efficient CFL or LED bulbs can save $50 annually. Pacific Gas & Electric (PCGhelpfully suggests that if a device's plug adapter runs warm to the touch or has a continuously running light or display, it is probably an energy vampire.
Turn off the lights when you leave the room. Close the flue in the fireplace once the fire is entirely out. Change your furnace filters once a month. Shorten your hot showers. This latter tip saves both water and energy -- especially if you turn your hot water heater down to around 120 degrees.
Open your drapes when the sun is shining into a room -- especially south-facing windows. Just imagine where a cat would lay to soak up the warmth and open the curtains to let Old Sol do its job. Close curtains when the sun has moved on. Outside your home, use solar-powered light fixtures where possible.

Some ceiling fans can be reversed to draw hot air down and keep you warmer. Check the owner's manual (available online if you've misplaced it) to see if yours has this option. Use rolled up towels or draft-dodgers at the bottoms of doors. If you bake or roast in the winter, leave the oven door ajar to warm the kitchen and shut the door once the oven cools down. Finally, if push comes to shove, most utility companies offer budget billing solutions and heat assistance for senior citizens and lower-income customers.


Read Full Story
  • DJI26770.20-255.68-0.95%
  • NIKKEI 22522492.6840.820.18%
    Hang Seng26719.58-128.91-0.48%
  • USD (PER EUR)1.120.00000.00%
    USD (PER CHF)1.020.00010.01%
    JPY (PER USD)108.350.00000.00%
    GBP (PER USD)1.300.00000.00%